It can be hard to think of the future and retirement when you are so busy working as a commercial fisherman every day, but I learned early on that the only person who is going to take care of the old man I’m going to be is the young man I am today. When I first became a financial advisor, the expression “Nobody plans to fail, they fail to plan” was in our face all the time.
When it comes to saving for retirement there are many options which can often be confusing, but getting started as soon as you can is very important. For example, if a 25-year-old starts saving $5,000 a year in a retirement plan and earns a 6% return he or she will retire at age 65 with $773,810. However, if that same person waits until age 45 and saves twice as much, $10,000 in a retirement plan, and earns the same 6% return, he or she will retire at age 65 with only $367,856, less than half even the same amount of money was contributed.
This is a hypothetical example so your results will vary depending on your investment selections and does not take into account fees that are usually associated with investing. It’s easy to see, however, why Einstein once said that the most powerful force is compound interest.
There is a retirement plan that came out several years ago that is often overlooked but can be a great tool for a commercial fisherman called a Single K or Solo K. It allows for contributions that can be as high as $57,000 a year if your income allows for it; those contributions can be tax-deductible and help to reduce your tax liability just like any other qualifying expenses such as fuel and bait. A contribution to a retirement plan is still your money. Putting money away for retirement is usually a much smarter use of income than spending money on things you don’t need in order to pay less in taxes.
What if you don’t need a tax deduction, but still want to save for retirement?
Consider a Roth IRA or Roth 401(k) which allows for similar contribution limits but is not tax-deductible. Keep in mind that withdrawals from retirement plans prior to age 59-1/2 often come with a 10% penalty in addition to being taxed, so it is important that any contributions made are intended for retirement. The Single K can allow for loans that are not taxed or penalized as long as the loan is paid back within five years.
When it comes to investing and saving for retirement there are many things to consider, such as risk tolerance, time until retirement, taxes and other issues. My suggestion is to not get bogged down in all the options and the rules governing them. This is where working with a competent professional can help you.
While there is clearly an advantage to starting young, you are never too old to get started. Many fishermen over the years have told me that fishermen don’t retire. Perhaps they just failed to plan.
This article is intended as information and not as individual advice. Consult with your tax advisor and financial advisor about which plan is best suited for you and your situation.
Michael A. Godin is a LPL finacial planner at Twin Cities Financial Group in Lewiston